Franchisee Union Imminent... Industry Opposes, Warns "Small Businesses Face Collapse Risk"

Franchisee Collective Bargaining Rights
Challenges in Response
Presidential Veto Usage Debate
22nd National Assembly Regulatory Strengthening Interest

As the amendment to the "Fair Transactions in Franchise Business Act," which recognizes the collective bargaining rights of franchisees, was submitted to the National Assembly plenary session on the 28th, concerns are growing within the franchise industry.

The National Assembly held the last plenary session of the 21st term on the same day and submitted the amendment to the Franchise Business Act. The amendment is highly likely to pass the plenary session.

The opposition parties have shown strong determination to pass the amendment so far. The amendment mainly recognizes franchisee groups, who are individual business operators, as organizations similar to labor unions. It also stipulates that when franchisee groups request negotiations on changes to transaction conditions, the franchisor must comply, and if negotiations are refused, corrective measures and fines will be imposed.

The National Assembly held the final plenary session of the 21st National Assembly on the 28th and is proceeding with the processing of bills. Photo by Hyunmin Kim kimhyun81@

The franchise and distribution industries have consistently expressed opposition to the amendment. In particular, small-scale franchise companies with limited manpower and capital have been pointed out as problematic because they lack appropriate means to respond even if franchisee groups make unreasonable negotiation demands to headquarters. According to the "Distribution of Franchise Stores by Brand" data released by the Fair Trade Commission on the 9th of last month, among all franchise brands, 8,988 brands have fewer than 10 franchise stores, accounting for 72.3% of the total 12,429 brands.

An industry insider said, "For large franchises, the hurdle to form a franchisee group is high, but for small-scale franchise companies, if one or two strong-willed franchisees lead, a franchisee group can be formed." He added, "If the franchisee group makes unreasonable demands, small companies may face difficulties due to a lack of know-how and funds to respond."

Large franchise companies are also deeply concerned. If franchisee groups demand price increases to raise margins, refusal to participate in discount events, or separate purchases of raw materials, it inevitably harms the brand's image and worsens management. Especially for large franchises with many franchisees, multiple franchisee groups may form, and if they compete for leadership through a "competition of clarity," the headquarters will be helpless.

For now, the franchise industry is focusing on whether the president will exercise the veto power after the amendment passes the National Assembly plenary session and on the enforcement decree to be created by the Fair Trade Commission. Earlier, on the 25th of last month, Jung Hyun-sik, chairman of the Franchise Industry Association, said at a National Assembly press conference, "The 1.2 million franchise industry workers oppose this one-sided and unrealistic bad law," emphasizing, "This amendment must never pass the plenary session, and if it does, we will recommend the president exercise the veto."

However, if President Yoon Seok-yeol exercises the right to request reconsideration (veto) after the end of the 21st National Assembly, the procedure becomes complicated. According to Article 53 of the Constitution, the president must promulgate a bill passed by the National Assembly within 15 days and may exercise veto power within that period if there are objections. The problem is that the 21st National Assembly's term ends on the 29th, right after this plenary session. If President Yoon exercises the veto after the 22nd National Assembly's term begins on the 30th, controversy is likely over whether the new National Assembly can reconsider the bill.

The enforcement decree to be created by the Fair Trade Commission is also attracting attention. According to Article 14-3 of the amendment, a franchisee group can be registered with the Fair Trade Commission or the respective city/provincial governor only if a certain percentage or number of stores of franchisees is exceeded. This standard is delegated to the enforcement decree. The presidential enforcement decree is a legal order enacted by the president. The relevant ministry drafts the decree, the minister recommends it to the president, and after deliberation by the State Council, it is promulgated. The Fair Trade Commission is in charge of this bill.

However, it cannot be ruled out that the opposition parties in the 22nd National Assembly may add standards for establishing franchisee groups to the bill through re-discussion. The Fair Trade Commission, which must create the enforcement decree, has consistently expressed concerns about the amendment, contrary to the opposition's will. On the 16th, Fair Trade Commission Chairman Han Ki-jung said at a press briefing, "It is not easy to judge the side effects and negative impacts," adding, "Since there are concerns about the contraction of the franchise industry, caution is needed. Conflicts may deepen not only between franchisors and franchisees but also among franchisee groups."

Moreover, with the 22nd National Assembly expected to have a more confrontational political climate than the 21st, industry concerns are growing. Another industry insider said, "Since the 22nd National Assembly will also have a ruling party minority, regulations will become stronger," adding, "Because of this, there are concerns that even stronger regulations than the current franchise law passed this time may emerge in the 22nd National Assembly."